Vulcan Value Partners Q1 2025 Letter

Volatility returned during the first quarter. Talking to many of our companies’ management teams, we detect a more cautious view than had been the case following the recent election. Optimism about deregulation and a more business friendly government has given way to uncertainty about tariffs and their potential impacts on earnings, inflation, and economic growth. Despite these potential headwinds we believe our companies are well positioned to grow their values in a sub-par economic environment and maintain them in a more challenging environment.

We welcome market volatility because it gives us opportunities to execute our dual investment discipline. We seek to limit our investments to companies with stable values. Increased market volatility gives us the opportunity to purchase these stable value businesses at lower prices and with a correspondingly larger margin of safety. We are pleased that our price to value ratios improved across all of our strategies during the first quarter.

As this letter is being written, the Trump administration has announced its tariffs plan. The market reaction has been negative. Volatility has increased significantly. We are assessing the impact of these policy changes on our portfolio companies. We are pleased that our values are much more stable than our companies’ stock prices. While we do not minimize the net negative impact of tariffs, increased volatility is providing opportunities for us to reallocate capital and improve our margin of safety. Moreover, we are adding capital to outstanding businesses with promising long-term prospects.

Over the last couple of years, Mac Dunbar has spent some of his time building Opus Holdings (OTCPK:CATV), a promising permanent capital venture affiliated with Vulcan Value Partners (MUTF:VVILX). Mac will transition to this new venture full time in January 2026, and it will become an independent company. Over the course of this year, he will delegate his responsibilities to other members of our research team. He will relinquish his portfolio manager role on June 30th. Mac joined our firm 15 years ago and has served as Director of Research over the last five years. He has made numerous valuable contributions to our firm. We have no doubt that he will be successful in his new venture and wish him well.

We are fortunate to have a deep bench on our research team. I will remain fully engaged for the foreseeable future and look forward to working with our team to continue to develop the next generation of leadership at Vulcan Value Partners.

Sincerely,

C.T. Fitzpatrick, CFA, Chief Investment Officer

Q1 2025

Our results are detailed in the table below. As we have often said, we place no weight on short-term results, good or bad. When we think we can improve our prospective long-term returns and lower risk, we will make those decisions without regard to their effect on short-term performance.

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Please reference additional performance information for each of the composites in the strategy reviews that follow and important disclosures at the end of this document.

In the discussion that follows, we generally define material contributors and detractors as companies having a greater than 1% impact on the portfolio and should be viewed in context with the performance information provided for each strategy. With respect to the discussion of contributors and detractors or the performance of any individual holding shown here, no individual investment is intended to be representative of any particular strategy. For a complete understanding, please see the performance and accompanying disclosures at the end of this letter.

Large Cap Review

As of 3/31/2025

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Inception 03/31/2007

We purchased three positions during the quarter: Medpace Holdings Inc., Stanley Black & Decker (SWK), and TPG Inc. (TPG).

We sold four positions during the quarter: Live Nation Entertainment Inc. (LYV), Marriott International Inc. (MAR), Fiserv Inc. (FIS), and Abbott Laboratories (ABT).

There were no material contributors to performance. There was one material detractor: Skyworks Solutions Inc. (SWKS).

Medpace Holdings (MEDP) is a global clinical contract research organization (CRO) providing outsourced drug development services. Medpace provides a full-service model attractive to small and midsized biotechnology firms that lack the infrastructure needed to navigate the drug development process. This customer base is typically less price sensitive and relies on Medpace to perform end-to-end contract services for drug development. Medpace produces robust free cash flow and has a strong balance sheet. After several years of double-digit earnings growth, we expect the company to have a relatively flat year in 2025. Over the long term, we expect the company to return to double-digit growth. In addition to being outstanding operators, Medpace’s management team has a history of intelligent capital allocation decisions. We are pleased to own this wonderful business.

Stanley Black & Decker is a manufacturer of tools and industrial fastening products. Brands include DEWALT, Black & Decker, Craftsman, Stanley, Lenox, Cub Cadet, and Troy-Bilt. Its Tools and Storage segment makes up 90% of company revenue which includes power tools, hand tools, and outdoor equipment. The remaining 10% comes from its Engineered Fastening segment, which includes fasteners, rivets & welding equipment for the automotive, aerospace and industrial markets. The company has strong brands, high market share, and global scale. Stanley Black & Decker’s earnings have been under pressure for the last several years due to Covid related supply chain issues and difficulty integrating acquisitions. More recently, higher interest rates have depressed housing demand, which in turn has reduced demand for its core tools business. Going forward, we expect the company’s cost restructuring plan to underpin strong earnings growth. In addition, the company’s renewed focus on investing in organic growth gives us confidence that the company has a long runway to deliver more consistent earnings growth. Recent announcements about tariffs could slow the company’s progress but it does not change our fundamental investment case.

TPG is an alternative asset manager with a great reputation and proven track record. The alternative asset manager industry benefits from long-term capital, which leads to annuity-like fee streams. In addition, the industry continues to enjoy tailwinds from increasing capital flows into private markets. We have followed TPG since their IPO in 2022 and have been impressed with their execution. We expect TPG to continue to expand their market share in a growing industry, and we expect fundraising, fee revenue, and fee earnings to accelerate. TPG is in a great position to fundraise as the company consistently returns capital to LPs. Many in the industry struggle to return funds, and this differentiates TPG.

We sold Live Nation, Marriott International, Fiserv, and Abbott Laboratories to reallocate capital into more discounted companies. They were all great investments over our holding period.

Skyworks is a leader in radio frequency (RF) systems primarily for mobile phones, wireless infrastructure, aerospace and defense, internet of things, and various other applications. Their components are mission-critical and support key network technologies, including cellular, WiFi, GPS, and Bluetooth connectivity. Only a handful of companies are able to design and manufacture high-end RF components, making them important long-term partners to their customers. While results can be cyclical, Skyworks has maintained and grown its market share over time. Recently, Skyworks lost market share to a competitor which negatively affected our value and caused us to reevaluate Skyworks’s competitive position. While Skyworks’s moat is not as strong as we had originally believed, it remains one of the leading companies in a consolidating industry with high barriers to entry.

Small Cap Review

As of 3/31/2025

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Inception 03/31/2007

We purchased one position during the quarter: Jones Lang LaSalle Inc. (JLL).

We sold two positions during the quarter: Cushman & Wakefield plc (CWK) and EnerSys (ENS).

There were two material contributors to performance: ISS A/S (OTCPK:ISFFF) and Ituran Location and Control Ltd. (ITRN). There was one material detractor: PROG Holdings Inc. (PRG).

Jones Lang LaSalle is one of the largest commercial real estate service providers in the world, serving both investors in and corporate occupiers of real estate. It provides leasing brokerage, M&A and investment advisory services, as well as property and project management services. To complement its core business, the company also owns LaSalle, one of the largest global real estate investment management businesses in the world. Jones Lang LaSalle is a secular grower in a consolidating industry, is broadly diversified by geography, asset class and line of service, and has an inherently variable cost structure that has allowed it to generate free cash flow in both good and bad times.

We sold Cushman & Wakefield and EnerSys to reallocate capital into more discounted companies.

ISS is a facilities management company based in Denmark specializing in services that are non-core to their customers such as cleaning, food management, building maintenance, security, technical support, and other services. The company is performing well. The company grew its operating profits 24% last year. We expect 2025 to be another strong year with double-digit growth in free cash flow. Over the long term, we expect ISS to be able to grow at a mid-single digit rate. Moreover, the company announced a 3.1 billion DKK shareholder return, which represents approximately 10-11% of the company’s market cap at the time of the announcement. This shareholder return consists of a 2.5 billion DKK share repurchase program with the remainder being dividends. ISS has global scale to service multinational accounts and to benefit from the trend of companies outsourcing non-core functions to service providers such as ISS. ISS has historically consistent operating margins and benefits from business contracts which allow it to pass through wages and other cost increases to its customers.

Ituran is an Israel-based company that provides stolen vehicle recovery services. Its largest market is Israel, followed by Brazil. They offer a subscription service that allows customers’ vehicles to be tracked using RF technology. Customers typically receive a discount on their auto insurance when they subscribe to Ituran’s service. Ituran’s revenue model produces strong free cash flow and stable margins. The company is performing well, and we believe remains discounted despite the recent increase in share price.

PROG Holdings provides lease-to-own financing solutions for non-prime borrowers through a national retailer partner network. In the second half of 2024, one of its largest customers, Big Lots, declared bankruptcy and agreed to be bought by a private equity firm. In December, the sale was cancelled, forcing Big Lots to move forward with liquidation. We believe PROG’s stock price decline was far greater than the impact on origination volumes by Big Lots’ closure. Further, we expect the company will be able to offset these lost volumes with share gains at existing retailer partnerships and new customer wins.

Focus Review

As of 3/31/2025

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Inception 11/30/2007

We did not purchase any positions during the quarter.

We sold one position during the quarter: Skyworks Solutions Inc.

There were no material contributors to performance. There were five material detractors: Salesforce Inc. (CRM), Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Skyworks Solutions Inc.

Skyworks is a leader in radio frequency systems primarily for mobile phones, wireless infrastructure, aerospace and defense, internet of things, and various other applications. Their components are mission-critical and support key network technologies, including cellular, WiFi, GPS, and Bluetooth connectivity. Only a handful of companies are able to design and manufacture high-end RF components, making them important long-term partners to their customers. While results can be cyclical, Skyworks has maintained and grown its market share over time. Recently, Skyworks lost market share to a competitor which negatively affected our value and caused us to reevaluate Skyworks’ competitive position. While Skyworks continues to qualify for investment, we do not think the moat is as strong as we had originally believed. We therefore made the decision to sell it from Focus and reallocate capital to other discounted businesses that are more competitively entrenched.

Salesforce is the world’s leading SaaS vendor for customer relationship management and salesforce automation (SFA) software. Growth guidance for the upcoming year was less than anticipated, indicating monetization of Salesforce’s Agentforce will take time. However, the company has already closed thousands of Agentforce deals, it expects Agentforce’s contribution to revenue to ramp throughout the current year, and contribute more significantly the following fiscal year.

Amazon.com is a dominant, world-class company with powerful secular tailwinds in place including its e-commerce penetration, digital advertising growth, and the cloud transition. Amazon reported strong results during the fourth quarter. The company sold off along with the majority of the cloud computing ecosystem during the first quarter.

Microsoft is the world’s largest software company with a broad range of offerings including Microsoft Office, gaming, Azure cloud computing, LinkedIn, and more. Our estimated value for Microsoft grew at a double-digit rate over the past year. The company’s operating profits also grew at a double-digit rate. We expect the company’s value and its operating profits to continue to compound at double-digit rates. We were pleased to have the opportunity to add to our position at lower prices during the quarter.

Alphabet delivered strong results during the fourth quarter. We continue to monitor generative AI disruption risks and the ongoing antitrust cases against the company, and we will follow our discipline as we receive more information. The company sold off along with the majority of the cloud computing ecosystem during the quarter.

Focus Plus Review

As of 3/31/2025

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Inception 03/31/2007

We did not write any options contracts during the quarter. We use options to lower risk. Equity-like returns are possible when option prices reflect higher levels of implied volatility. If exercised, these options give us the right to purchase stakes in companies we want to own at a lower price than the market price at the time the option was written. We would like for these options to be exercised and have set aside cash for that purpose. We employ no leverage. In effect, we are being paid while we wait for lower prices and a corresponding larger margin of safety. We also use options to exit positions. Generally, we write covered calls with the strike price being our estimate of fair value. As with our puts, we are being paid to do something we would do anyway at a given price.

We did not purchase any positions during the quarter.

We sold one position during the quarter: Skyworks Solutions Inc.

There were no material contributors to performance. There were five material detractors: Salesforce Inc., Amazon. com Inc., Microsoft Corp., Alphabet Inc., and Skyworks Solutions Inc.

Skyworks is a leader in radio frequency systems primarily for mobile phones, wireless infrastructure, aerospace and defense, internet of things, and various other applications. Their components are mission-critical and support key network technologies, including cellular, WiFi, GPS, and Bluetooth connectivity. Only a handful of companies are able to design and manufacture high-end RF components, making them important long-term partners to their customers. While results can be cyclical, Skyworks has maintained and grown its market share over time. Recently, Skyworks lost market share to a competitor which negatively affected our value and caused us to reevaluate Skyworks’ competitive position. While Skyworks continues to qualify for investment, we do not think the moat is as strong as we had originally believed. We therefore made the decision to sell it from Focus Plus and reallocate capital to other discounted businesses that are more competitively entrenched.

Salesforce is the world’s leading SaaS vendor for customer relationship management (CRM) and salesforce automation (SFA) software. Growth guidance for the upcoming year was less than anticipated, indicating monetization of Salesforce’s Agentforce will take time. However, the company has already closed thousands of Agentforce deals, it expects Agentforce’s contribution to revenue to ramp throughout the current year, and contribute more significantly the following fiscal year.

Amazon.com is a dominant, world-class company with powerful secular tailwinds in place including its e-commerce penetration, digital advertising growth, and the cloud transition. Amazon reported strong results during the fourth quarter. The company sold off along with the majority of the cloud computing ecosystem during the first quarter.

Microsoft is the world’s largest software company with a broad range of offerings including Microsoft Office, gaming, Azure cloud computing, LinkedIn, and more. Our estimated value for Microsoft grew at a double-digit rate over the past year. The company’s operating profits also grew at a double-digit rate. We expect the company’s value and its operating profits to continue to compound at double-digit rates. We were pleased to have the opportunity to add to our position at lower prices during the quarter.

Alphabet delivered strong results during the fourth quarter. We continue to monitor generative AI disruption risks and the ongoing antitrust cases against the company, and we will follow our discipline as we receive more information. The company sold off along with the majority of the cloud computing ecosystem during the quarter.

All Cap Review

As of 3/31/2025

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Inception 04/01/2011

We purchased three positions during the quarter: Sodexo SA (OTCPK:SDXOF), Jones Lang LaSalle Inc., and TPG Inc.

We sold three positions during the quarter: Cushman & Wakefield plc, Ares Management Corp. (ARES), and Partners Group Holdings (OTCPK:PGPHF).

There was one material contributor to performance: ISS A/S. There was one material detractor: Skyworks Solutions Inc.

Sodexo is a food services and facilities management company. It is the third-largest on-site food services company in the world, behind Compass Group and Aramark, serving corporate offices, schools, hospitals, and other venues. Food Service makes up roughly two thirds of their revenue, and approximately 50% of the total market for food services remains in-sourced. The remaining third of its revenue comes from Facilities Management, which includes outsourced cleaning, security, and building engineering and maintenance. There are many reasons we like Sodexo, including its strong balance sheet, stable revenues in both good economic times and bad, long-term customer contracts, and a solid customer retention rate of approximately 95%. The family of the founder, Pierre Bellon, owns 40% of shares and they have been good long-term owners. Over the last few years, the management team has been enhancing the business, resulting in improved margins, a higher customer retention rate, and stronger new business development. The company also spun out noncore businesses and has simplified its corporate structure.

Jones Lang LaSalle is one of the largest commercial real estate service providers in the world, serving both investors in and corporate occupiers of real estate. It provides leasing brokerage, M&A and investment advisory services, as well as property and project management services. To complement its core business, the company also owns LaSalle, one of the largest global real estate investment management businesses in the world. Jones Lang LaSalle is a secular grower in a consolidating industry, is broadly diversified by geography, asset class and line of service, and has an inherently variable cost structure that has allowed it to generate free cash flow in both good and bad times.

TPG is an alternative asset manager with a great reputation and proven track record. The alternative asset manager industry benefits from long-term capital, which leads to annuity-like fee streams. In addition, the industry continues to enjoy tailwinds from increasing capital flows into private markets. We have followed TPG since their IPO in 2022 and have been impressed with their execution. We expect TPG to continue to expand their market share in a growing industry, and we expect fundraising, fee revenue, and fee earnings to accelerate. TPG is in a great position to fundraise as the company consistently returns capital to LPs. Many in the industry struggle to return funds, and this differentiates TPG.

Cushman & Wakefield plc, Ares Management Corp., and Partners Group Holding AG to reallocate capital into more discounted companies.

ISS is a facilities management company based in Denmark specializing in services that are non-core to their customers such as cleaning, food management, building maintenance, security, technical support, and other services. The company is performing well. The company grew its operating profits 24% last year. We expect 2025 to be another strong year with double-digit growth in free cash flow. Over the long term, we expect ISS to be able to grow at a mid-single digit rate. Moreover, the company announced a 3.1 billion DKK shareholder return, which represents approximately 10-11% of the company’s market cap at the time of the announcement. This shareholder return consists of a 2.5 billion DKK share repurchase program with the remainder being dividends. ISS has global scale to service multinational accounts and to benefit from the trend of companies outsourcing non-core functions to service providers such as ISS. ISS has historically consistent operating margins and benefits from business contracts which allow it to pass through wages and other cost increases to its customers.

Skyworks is a leader in radio frequency systems primarily for mobile phones, wireless infrastructure, aerospace and defense, internet of things, and various other applications. Their components are mission critical and support key network technologies, including cellular, WiFi, GPS, and Bluetooth connectivity. Only a handful of companies are able to design and manufacture high-end RF components, making them important long-term partners to their customers. While results can be cyclical, Skyworks has maintained and grown its market share over time. Recently, Skyworks lost market share to a competitor which negatively affected our value and caused us to reevaluate Skyworks’s competitive position. While Skyworks’s moat is not as strong as we had originally believed, it remains one of the leading companies in a consolidating industry with high barriers to entry.

Closing

We are pleased that we were able to take advantage of increased market volatility during the first quarter to improve our price to value ratios and increase our margin of safety. As noted in our opening remarks, volatility has increased as we have entered the second quarter. We are following our dual discipline and allocating capital to companies whose values are more stable than their stock prices. We know that stock price volatility is stressful, however it creates wonderful opportunities for long-term investors. Our investment philosophy is designed to take advantage of stock price volatility. We appreciate your stable capital and shared long-term time horizon which allows us to execute our investment philosophy. We thank you for the confidence you have placed in us.

The Vulcan Value Partners Investment Team,

C.T. Fitzpatrick, CFA | McGavock Dunbar, CFA | Stephen W. Simmons, CFA| Colin Casey | Taylor Cline, CFA | David Shelton